The purpose of legislation would be, in line with the Government's objectives of financial stability, competitiveness and consumer confidence, to impove the current framework for dealing with banks in distress, including the arrangements for depositor protection.
The Government has set out that any reform must meet the following objectives:
It must be well understood by retail depositors, with consumers confident that they are protected by an appropriate, credible and reliable guarantee that can operate in a timely fashion;
It must maintain wider market confidence with full transparency about the framework (including its funding) that would operate in the case of a disruption to banking services; and
It must preserve the critical banking services appropriate to retail, business and wholesale customers of a bank for such time as is necessary to effect an orderly transition to an alternative banking provider; while
It must maintain the UK's reputation as the pre-eminent location for financial services; and
It must protect the taxpayer interest and ensure an appropriate sharing of costs between all parties.
The Government is committed to extensive discussion and consultation before bringing forward legislation in the forthcoming session of Parliament.
As a first step in that process the Treasury, Financial Services Authority and Bank of England published a discussion paper, Banking reform - protecting depositors on 11 October 2009, and responses to the issues raised in that paper are requested by 5 December 2007.
Informed by the responses to this paper, the Government intends to follow up with a consultation document in early 2008. Before enacting any concrete measure, the Government wants to be reasonably assured that the benefits of the proposed changes exceed the costs.